Credit Cards: Will a Use Surcharge Change Your Habits?

Last week’s zillion-dollar settlement with Visa and Mastercard, in which merchants at last will be allowed to charge cash customers less than those who pay with credit cards (a transaction that can cost the merchant upwards of 2 percent on every sale), may mean some serious changes for consumers. In their contracts, credit-card issuers impose restrictions on merchants prohibiting the practice of charging more to people who run up the cost of business by charging purchases. As a result, we all pay more, because the only way a retailer or service provider can recover that expense is to increase prices for everyone.

Wouldn’t it be nice if those of us who prefer the convenience of credit and debit cards paid for the privilege, and the rest of us paid the actual price of goods and services?

That may come to pass.

Already, according to a report in today’s Times, ScanMyPhotos.com has lowered prices by 2 percent, and Kroger supermarkets may institute a two-tiered pricing scheme: less if you pay with cash, more if you pay with a card.

If you’re a regular reader here, you know I pay for everything with credit cards, preferably with American Express, and then settle the bill in full at the end of each month. Two reasons for this:

a guaranteed paper trail, and
generous cash kickbacks from AMEX and MasterCard.

Three reasons, actually: cash flows through my fingers like water. I can spend two hundred dollars in a day and have no idea where it went. The extra trouble entailed in signing for a credit transaction—plus knowing that in a few weeks I’ll have to come up with a big chunk of cash to pay the month’s accrued bills—makes me think twice about buying something I don’t really need.

I used to pay for everything with checks. There, too, the hassle factor entailed in dragging out a checkbook, annoying other customers who had to stand around while I wrote a check, and a complicated bank statement to reconcile tended to work against impulse buying and casual overspending.

If merchants start charging less to cash customers, will you abandon your credit cards? Or is the card’s convenience something you’re willing to pay for?

Pour moi, I certainly will start paying by check again. In my case, though, I don’t travel much. If you’re on the road a lot, you’ll still need a card to make airline and hotel reservations. But there’s nothing to stop a person from keeping just one card and using it only for travel costs. I love my credit cards, but I’ll be darned if I’m going to pay 2 percent more for groceries and gasoline.

Et vous?

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Money Beagle July 17, 2012 at 9:35 am

I am simply flabbergasted by this. I can’t believe this was deemed OK by those who have the power to do this. So many times over the past few years we’ve heard about how rules and such are supposed to make it easier and less complicated for the consumer. How does this accomplish any of those things? With a credit card, it was easy. One thing to carry around. Less hassle. Purchase and fraud protection. Easy to log in and look back at where the money was spent. Now, if people go back to cash, it’s more trips to the ATM, it’s no purchase protection at all, it’s invitations for more thefts, it’s forgetting a purchase and having no idea where all the money went.

Terrible.

funny July 17, 2012 at 9:43 am

@ Money Beagle: Well, you won’t be required to use cash. You’ll just have to pay a little extra for the privilege of charging.

For most of us, it might not be that much. For example, I budget $1100 for discretionary expenses, all of which are charged on AMEX and MasterCard. At 2 percent, the surcharge would be all of $22 a month — $264 a year. It’s not enough to break the bank.

I’m such a cheapskate that I probably will opt for cash & checks. But most people would not find that extra amount prohibitive.

Remy @MLISunderstanding July 17, 2012 at 10:46 am

I’m the same way with cash — I spend it without knowing at the end of the day where it all went; I find change in my pockets days or weeks later; I don’t feel in control of my money. If I use a card, I have a record available to me online of all my charges, and it’s immensely convenient not to have to carry cash. Plus, yeah, fraud protection and accidental loss protection (I’ve used both).

I get between 1% and 5% cash-back rewards on my Chase Freedom card, so I use it for everything I can. (And of course I pay it off in full, so there’s no interest.) If prices aren’t going UP for credit card users (rather, becoming less expensive for those who pay with cash), I don’t see that I lose anything — I budgeted for that cost already — and I still get the extra rewards that I’m putting toward my grad school expenses.

June Ruggieri July 18, 2012 at 7:45 am

Around here they already charge more for gas if you use a card. It wasn’t bad when it was a few cents per gallon but now it’s maybe 10 cents a gallon. I pay cash for gas.

What are you going to do when they take away the grace period on your cards? I heard we’re going to have to start paying interest from the day you charge. I’ve seen that before and I don’t like it one bit.

funny July 18, 2012 at 7:58 am

@ June: I believe that in Arizona (at least) it violates the contract between the merchant and the credit-card issuer to charge card users more.

Since I buy all my gasoline at Costco, my response to that would simply to be to buy a cash card and pay for gas with that. I do not have time to stand in line and pay for gasoline with cash, and besides, most places here that sell gas at affordable prices are in unsafe neighborhoods. I leave my purse hidden under a rag and locked in the car while I’m pumping gas and then get out of there as fast as I can, with the doors locked.

The instant a card issuer starts charging interest from the day of purchase is the last instant I use a credit card. I don’t use debit cards because of the high liability for loss in the event of theft, but I probably would accept one from the credit union so as to have a way to pay for trips and Amazon purchases. The Amazon purchases are about to go away for me, anyway, with the pending federal legislation that will require online retailers to charge state and local taxes. Our sales taxes here are almost 10%, making it highly cost-effective to buy products online. Once that advantage is gone, there’ll be little point in buying online, and so that specific need for a credit card will become moot.

george July 18, 2012 at 9:09 pm

I loathe credit cards. I only use them when I can pay them off at the end of each month, like for gasoline for the corporate car.
Years ago when I was making big money my GM card upped my credit level to $45,000.
Shucks, I could trade in my Chevy Silverado 2500K for a Cadallic STS and just put it on my credit card. That Northstar V8 was supposted to be a kick a$$ engine.
I kept the Chevy.

The CC companies are just fishing and they want to reel you in and if you fall for it you are a sucker.

funny July 19, 2012 at 4:51 am

@ George: Y’know, I had exactly the same idea. On the rare occasions that I buy cars, I pay in cash. Imagine the AMEX kickback if you charged a new tankmobile and then immediately paid it the bill!

marzy doats July 19, 2012 at 8:36 am

I can’t see this ruling changing much. Stores are already allowed to offer discounts for cash, but very few of them do that. I think the reason is that stores favor credit card sales for the same reasons we do. If they start taking large amounts of cash they are increasing their risk of theft both by employees and by robbery. They have to pay more to have employees count and deposit the paper money. It is harder to track their sales and to get demographic information on their customers when they pay cash. And don’t even get me started on checks – many places wont even take them due to the risk of fraud.

Also, research supports the idea that customers spend more when they have credit cards as opposed to cash. If you don’t have any more cash, you stop shopping. If you have the credit card you let that cute little blouse on sale tempt you into a purchase. I don’t think stores want to give that up.

Maybe I’m being too optimistic, in which case I will have to start getting wads of cash out of the ATM for my groceries!

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